Research Team at Goldman Sachs, notes that the big outlier has been the Yen, which has strengthened sharply following the BoJ’s shift to negative rates at its January meeting, with markets choosing to interpret the shift as a signal that the “BoJ is out of bullets.” Key Quotes “We strongly disagree. Fundamentally, we think this is about whether the BoJ is backing away from its 2 percent inflation target and we see no indication – whatsoever – that this is the case. In fact, as we argued in our last FX Views, the BoJ’s implementation of QQE compares favourably to the ECB QE program, given how aggressively the JGB yield curve has been flattened and stabilized. This means that portfolio rebalancing (out of JGBs into risk assets, including other currencies) is underway in Japan, which is a force for a weaker Yen even before additional BoJ easing (which we anticipate) is taken into account. GPIF quarterly investment flow into foreign stocks and bonds: The main message is that – although the portfolio shift from the GPIF into foreign assets is large – it certainly does not account for the pick-up in outward investment from Japan that looks to have accelerated from 2014 onwards. In other words, the large pick-up in flows out of Japan does not look to be driven by GPIF diversification, but looks to be much more broad-based, which we think underscores the genuine portfolio rebalancing that is taking place in reaction to the BoJ’s aggressive implementation of QQE. We see this as a fundamental force for $/JPY higher, in line with our 12-month forecast of 130, even before taking into account that additional easing from the BoJ is likely given that the central bank’s commitment to its 2 percent inflation target remains beyond question. Indeed, we think this portfolio rebalancing will only become more powerful given the large flattening in the JGB yield curve that has taken place since the BoJ’s move into negative interest rates, given that this is likely to accelerate the search for yield among Japan’s investors.” For more information, read our latest forex news.